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Why You Must Add Travelers Companies (TRV) to Your Portfolio

The Travelers Companies, Inc . TRV is poised for growth, high retention rate, pricing gains, positive renewal rate changes and a solid capital management. This Zacks Rank #2 (Buy) property and casualty insurer remains promising, banking on several growth prospects.

Growth Projections : The Zacks Consensus Estimate for 2018 earnings per share is pegged at $10.59 on $29.4 billion revenues. Both the bottom and the top lines rise year over year, reflecting 45.5% and 2.6% increase, respectively.

The consensus mark for 2019 is pegged at $11.27 on revenues of $30.5 billion. While the bottom line translates to a 6.4% increase, the top line represents a 3.9% improvement, both on a year-over-year basis.

Travelers Companies has expected long-term earnings per share growth of 7.1%.

Impressive Price Performance : Shares of Travelers Companies have increased 4.1% year to date, outperforming the industry 's growth of 2.4% and higher than the S&P 500 index's 2.2% gain.

Shares Undervalued : Valuation remains attractive at current level. Looking at the company's price-to-book ratio, the best multiple for valuing insurers, the company currently has a trailing 12-month P/B ratio of 1.71, lower than the industry range of 1.63. Undervalued shares with strong fundamentals offer best investment opportunities.

Upward Estimate Revisions : The stock has seen the Zacks Consensus Estimate for current-year and 2019 earnings being revised 2.2% and 6.8% upward, respectively, over the last 30 days.

Positive Earnings Surprise History : The company has surpassed the Zacks Consensus Estimate in two of the last four quarters with an average beat of 43.06%.

Growth Drivers in Place

Travelers Companies continues to benefit from its strong market position and economies of scale. The company remains focused on implementing pricing and other actions to continue increasing returns and more importantly, improving profitability.

Underlying underwriting margin, a measure assessing an insurer's performance, has been exhibiting improved results. For 2018, the company projects higher underlying underwriting margins for business insurance segment compared with that of 2017. With respect to Bond & Specialty Insurance segment, the underlying underwriting margins for the first nine months of 2018 will remain consistent with the level recorded in the same period of 2017. Though, last quarter, the company expected higher underlying underwriting margins than that of the same period in 2017. Coming to Personal Insurance, the company again estimates the underlying underwriting margins to be ahead of the figure registered in 2017.

Investment income, an important component of insurers' top line, has been improving over the past several quarters, driven by higher private equity returns. For 2018, Travelers Companies anticipates about $25-$30 million of higher after-tax net investment income on a quarterly basis compared with the same in 2017. A slowly improving rate environment continues to support this upside.

A strong capital position aids the company to return value to shareholders via dividend hikes and buybacks. While the company returned $2.2 billion in 2017, it has $4.6 billion left under its existing share repurchase authorization. The company has made 13 straight dividend raises, witnessing a 13-year CAGR of 9.6%. Also, its dividend yield of 2.04% betters the industry average of 0.46%.

The company generates solid cash flow and has a robust holding company liquidity. It is also diligently working toward improving its leverage ratios.

Other Stocks to Consider

Investors interested in the insurance industry can also look at NMI Holdings Inc. NMIH , Infinity Property and Casualty Corporation IPCC and The Progressive Corporation PGR for consideration.

NMI Holdings provides private mortgage guaranty insurance services in the United States. The company came up with an 85.1% earnings surprise last quarter. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Infinity Property and Casualty provides personal automobile insurance products in the United States. Last quarter, the company delivered a positive surprise of 262.25%. The stock carries a Zacks Rank of 2.

Progressive Corporation is a leading independent agency writer of private passenger auto coverage, and the market share leader for the motorcycle products. The company pulled off a 2.60% earnings surprise in the preceding quarter. The stock is a Zacks #2 Ranked player.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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